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Procedia Economics and Finance 16 (2014) 213 – 223

21st International Economic Conference 2014, IECS 2014, 16-17 May 2014, Sibiu, Romania

The study of factors that may influence the performance by the

Dupont analysis in the furniture industry
Vasile Burja a,*, Radu Mărginean b
a
University “1 Decembrie 1918” of Alba Iulia, Romania

Abstract

In the context of the study of economic and financial performance, a very useful tool in the specialized literature and practice is
the DuPont model. The analysis by the DuPont model is realized through the decomposition rate of return ROE (Return on
Equity) according to other rates of return, such as ROS (Return on Sales), ROA (Return on Assets) or Equity Multiplier. The
main objective of this paper is to present factors that can influence the performance of the DuPont analysis in five large
companies with activity in the furniture industry. In the case study we present the indicators and the calculation of ROE by the
DuPont analysis on a time horizon of 13 years to observe the influences of indicators in the model on profitability. Applying the
methodology of calculating the Pearson correlation coefficient, we studied the correlations of Turnover and ROE indicators with
other indicators of the model and presented the main existing influences.
© 2014
© 2014 The
The Authors.
Authors.Published
Publishedby
byElsevier
ElsevierB.V.
B.V.This is an open access article under the CC BY-NC-ND license
Selection and/or peer-review under responsibility of Scientific Committee of IECS 2014.
(http://creativecommons.org/licenses/by-nc-nd/3.0/).
Selection and/or peer-review under responsibility of Scientific Committe of IECS 2014
Keywords:The DuPont model, performance, Return On Equity(ROE), Return On Assets(ROA), Return on Sales(ROS), Pearson coefficient.

1. Introduction

Performance study in the specialized literature occupies a significant part of the economic and financial literature,
domestic and international. Performance in its multiple aspects, understood both at macro and micro level, is a real
lever that can ensure success in a certain field or in a particular activity, in specific competitive conditions existing in
the economy market. Given that there is this concern for improving performances, we believe that the application of
the DuPont model can highlight the level of the company and to consider an entire economic sector, the influences
of factors that performance can be composed and analyzed of.

* Corresponding author.
E-mail address:vasileburja@yahoo.com (Burja Vasile), marginean.radu23@yahoo.com (Mărginean Radu)

2212-5671 © 2014 The Authors. Published by Elsevier B.V. This is an open access article under the CC BY-NC-ND license
(http://creativecommons.org/licenses/by-nc-nd/3.0/).
Selection and/or peer-review under responsibility of Scientific Committe of IECS 2014
doi:10.1016/S2212-5671(14)00794-1
214 Vasile Burja and Radu Mărginean / Procedia Economics and Finance 16 (2014) 213 – 223

The main objective of this paper is the analysis and presentation of factors that can influence the performance of
the DuPont model into five large Romanian companies in the furniture industry. DuPont model application in the
furniture industry in Romania is poorly studied in the literature although it can provide useful leverage in separating
the factors that make a model of profitability such as the Return on Equity. This rate of return is of particular interest
for investors and for managers. Investors will watch particularly the maximization of interest for personal investment
by achieving a ROE (Net Income / Equity) as high as possible, top of other financial investments. From another
angle, managers are directly interested in increasing direct financial return for attracting new business investment.
Managers can also benefit from special support in helping executive decisions by using the DuPont analysis,
which helps in understanding the factors that influence the ROE in the model.
For statistical modeling of data sets with large distribution, in our case, for our financial economic indicators
analyzed using dynamics along 13 years – the use of the Pearson correlation coefficient can facilitate the intensity of
links research existent between indicators. The application of methodology specific to the Pearson correlation
coefficient is likely to scientifically found financial and economic reasons that can be an integral part of management
decisions so important to any company.

2. Research Methodology

In order to achieve the objectives of this paper, namely the study of factors that can influence the performance of
the DuPont model in the furniture industry, many works of literature on economic-financial performance were
consulted, on modeling and statistical factor rates of return used by professional theorists and practitioners in the
economic and financial analysis.
Conducting this research required a specific background quantitative analysis of data series for more companies
to highlight factors that influenced performance in companies operating in the furniture industry.
Regarding the methods of analysis in economics, Vâlceanu G. (2005) recalls specific qualitative and quantitative
analysis methods (qualitative analysis methods: modeling, comparison, grouping, division and breakdown of results;
quantitative analysis methods: the rate method, the balance method, the substitutions in chain method, the correlation
method, the scores method, the rating scales method, the Pareto diagram, operational research). For this study we
used the rate method, the correlation method and specific methods for qualitative analysis, such as comparison,
grouping, etc..
Regarding the DuPont analysis model, the name of the model or analysis comes from the DuPont corporation that
began using this formula in 1920, known as the "strategic profit model" (Goldring).
DuPont is a mathematical model represented as a factorial analysis of profitability from the financial return on
equity, ROE. Decomposing ROE in factors is one way by which the influences of each model rate on financial
performance for the analyzed company can be highlighted.
The core of the DuPont analysis considers the calculation of the Return On Equity (ROE). The development in
stages of the model allowed us to identify the following factors influencing ROE:

ேூ
ܴܱ‫ ܧ‬ൌ ா௤ (1)

Where,
ROE=Return on Equity, NI=Net Income, Eq=Equity

ROE can be decomposed in the next factors:

ேூ ்஺ ேூ ்஺
ܴܱ‫ ܧ‬ൌ ா௤ ൈ ்஺ ൌ ்஺ ൈ ா௤ ൌ ܴܱ‫ ܣ‬ൈ ‫ܯܧ‬ (2)

Where,

ேூ ்஺
ܴܱ‫ ܣ‬ൌ ்஺; ‫ ܯܧ‬ൌ ா௤
 Vasile Burja and Radu Mărginean / Procedia Economics and Finance 16 (2014) 213 – 223 215

ROE=Return on Equity, ROA= Return on Assets, EM=EquityMultiplier, NI=Net Income, TA= Total
Assets, Eq=Equity

Also, ROA can be decomposed in the next factors:

ேூ ்௨ ேூ ்௨
ܴܱ‫ ܣ‬ൌ ்஺ ൈ ்௨ ൌ ்௨ ൈ ்஺ ൌ ܴܱܵ ൈ ܶ‫ܶܣ‬ (3)

Where,
ேூ ்௨
ܴܱܵ ൌ ்௨; ܶ‫ ܶܣ‬ൌ ்஺;

ROA=Return on Assets, ROS= Return on Sales, TAT= Total Assets Turnover, NI=Net Income, Tu=Turnover,
TA= Total Assets, Eq=Equity

So, the decomposed DuPont model is:

ܴܱ‫ ܧ‬ൌ ܴܱܵ ൈ ܶ‫ ܶܣ‬ൈ ‫ܯܧ‬ (4)

or,

ேூ ்௨ ்஺
ܴܱ‫ ܧ‬ൌ ்௨ ൈ ்஺ ൈ ா௤ (5)
Where,

ROE=Return on Equity, ROA=Return on Assets, ROS= Return on Sales, TAT= Total Assets Turnover, NI=Net
Income, Tu=Turnover, TA= Total Assets, Eq=Equity

This pattern of factorial analysis provides the opportunity to highlight the factors which exert a positive or
negative influence on ROE, taking into account the specifics of each of the three rates of return involved in the
model. One of the advantages of the DuPont model is the extensive use of the rates of return in the analysis in the
specialists’ practice at international level, proving to be applicable to both small companies and large companies in
the economy. Statistician Karl Pearson (1857-1936) developed in the late nineteenth centuries, using the data in
Bavaris’ attempts, the final form of the correlation coefficients by the products phenomenon. Pearson's correlation
coefficient is a statistical model of the correlation calculation to establish the intensity of relationship between the
same two variables within the data distribution. According to the author Ciprian Evil (2010, p 72-74) the Pearson
correlation report has the following mathematical formula:


σሺ௫ି௫ҧ ሻሺ௬ି௬തሻ
‫ݎ‬ൌ  (6)
ඥσሺ௫ି௫ҧ ሻమ ሺ௬ି௬തሻమ

Where,
r= The Pearson correlation report
ത and ›ത represents the indicators’ average value on the same distribution range.
‫ݔ‬
According to the same author, the value of the correlation report is between -1 and 1, as follows(Ibidem):
െͳͲͳ

݊݁݃ܽ‫݊݋݅ݐܽ݅ܿ݋ݏݏܽ݁ݒ݅ݐ‬ሺ‫݁ݏݎ݁ݒ݁ݎ‬ሻ݈ܽܿ݇‫݊݋݅ݐܽ݅ܿ݋ݏݏܽ݁ݒ݅ݐ݅ݏ݋݌݊݋݅ݐܽ݅ܿ݋ݏݏ݂ܽ݋‬ሺ݀݅‫ݐܿ݁ݎ‬ሻ

As interpretation, it is generally considered that a value greater than 4 is a good value. The situation is the
following on ranges of values: r between [0; 0.2] signify very weak correlation, r between [0.2; 0.4] signify weak
216 Vasile Burja and Radu Mărginean / Procedia Economics and Finance 16 (2014) 213 – 223

correlation, r between [0.4; 0.6] signify reasonable correlation, r between [0.6; 0.8] signify high correlation, r
between [0.8; 1] signify very high correlation (SPSS Easy Learning).
In order to offer a statistical decision on the Pearson correlation coefficient, methodologically correct is to
necessary check its validity criteria according to The table with critical values for the Pearson correlation
coefficient. Critical R is selected from the particular table based on materiality chosen in advance (in specialty
practice p = 0.05 is used) and the number of degrees of freedom df = N-2, where N is the total amount of
individuals. If r calculated is greater or equal to the corresponding critical r in the table, we exclude the null
hypothesis (no correlation between significant indicators) and accept the hypothesis that between the two indicators
there is a statistically significant correlation or "trusted" (Ciprian Evil, 2010, p 73).
No matter how great the calculated r is, in order to assess the effect size of the correlation coefficient on the
sample population, it is necessary to calculate r2, square r, called the coefficient of determination. Through this
coefficient "we determine the joint association of all factors influencing the two variables and it represents a part of
the total dispersion of the variable measure that can be explained or justified by the dispersion of the values of the
other variable" (Ibidem).
As work effectively, the primary data used in this paper were drawn from public sources (Ministry of Finances of
Romania or companies specialized in providing financial data) and are extracted from the annual financial
statements of five companies with activity in the furniture industry. Our analysis is performed in space and
dynamics for a period of 13 years(2000-2012) for each company.
Data were arranged in tables according to the DuPont model indicators, we proceeded to calculate rates of return
of the model and diagrams were made on the evolution of the main indicators from the financial statements and of
the calculated rate indicators. By the Pearson correlation report, calculations were performed regarding correlations
between ROE and each of the financial ratios and rates involved in the model to highlight the influences that exist
both among and between annual financial and rate indicators in order to emphasize the influences existing both
between financial annual indicators, ROE and other calculated rate indicators. Correlations were calculated between
Turnover and each of the financial and rate indicators involved in the model to assess the effect that the size of
Turnover has on existing rate indicators (ROE, ROS, ROA, Asset Turnover and Equity Multiplier) and show the
link between the Turnover and Effort-Effect relationship-existing in the company (the company seen through the
prism of the accounting effort signifies Total Assets or Equity (in the DuPont model) and the effects of these are
found in the results (Net Income or calculated rates of return indicators mentioned above).

3. Literature Review

The need for economic and financial analysis appears to be pressing in the context of the dynamic global market
showing particularly complex phenomena and mechanisms, continuously changing. There is an important link
between the management function exercised by managers who are at the helm of large and medium-sized companies
and economic financial function analysis out of which we have the opinion that the most important function may be
considered to assist and found management decisions. Iulia Jianu (2007, 12) states that "against the abundance in
using the term ‘performance’, it is rarely defined." Starting from the same author, Iulia Jianu, in her Assessment,
Presentation and Analysis of Enterprise Performance, we mention a first definition of performance: "Performance is
a state of competitiveness of the enterprise that ensures sustainable market presence. Performance is an indicator of
potential future outcomes that occurs due to meeting strategic objectives. So performance does not characterize a
situation of the moment, it always refers to the future "(Ibidem., p.24).
The connection between the management system of enterprises and economic and financial analysis object is
highlighted by the authors A. Iştfănescu, C. Stanescu, A. Baicus (1999, p.11), which position this link: "By its
nature, the work of leading, regardless of the level at which it is carried and the field it concerns, it involves
thorough knowledge of a given situation, of the whole complex of causes and factors that determine it, which is
achieved through economic and financial analysis".
Economic and financial analysis according to the author M. Achim (2009, p.13) is the science that studies all
aspects of economic performance to showcase all the causes and factors that led some development of phenomena or
economic processes. Essentially, the purpose of the DuPont analysis is given by the desire of management and
financial analysis departments to break down in order to observe ROE in rate of return factors that each in itself
 Vasile Burja and Radu Mărginean / Procedia Economics and Finance 16 (2014) 213 – 223 217

facilitates a new understanding of the same economic phenomenon. In other words, a phenomenon is desired for
decomposition into several factors which in turn can provide relevant information on the phenomenon in a much
broader overview.
Many times in the literature, confusions are made between performance and profitability, and consequently, we
try to point some clarification on the concept of performance. In this respect, etymologically, according to the author
YvonPesqueux (2004, p. 6), the word ‘performance’ comes from the ancient French literature, namely from the XIII
century, ‘performer’, a word then taken by in the Anglo-Saxon literature of the fifteenth century in the form ‘to
perform’. The French meaning of the word ‘performance’ is ‘to perform a procedure’, work which led to the
expected effects, being considered as successfully completed. In the strict sense of the term, performance is the
result stood in a ranking perspective, competitive, built on a standard of reference or measurement.
Performance, as author M. Robu (p. 59) defined it, must be understood as the behavioral ability of a system to
achieve a resultant value at the reference levels that define it representative and comparable to achievements in the
economic environment in which the system occurs. However, in theory and in practice, on the concept of
performance, we shall remember two situations for performance analysis, namely singular and plural: enterprise
performance and economic and financial performances of the company.
Performance seen in a holistic approach is analyzed and presented by author Mihaela Herciu (2009, p.5) in her
book Overall Performance of the Company. In her view, "treating the overall performance of the company is
complex because of the many factors and variables that act on it, with a smaller or larger impact but which through
their focused and converged action lead to the desired results". The author points out the complexity of this issue, in
the multitude of possible approaches from several angles of economic discipline.
To summarize the performance issues, the authors M. Niculescu and G. Lavalette (1999, p 255) define this
concept as "unstable equilibrium resulting from the evolution of the concepts of efficiency and effectiveness".
Monica Petcu (2003, p. 311) in her book Economic and Financial Analysis of the Company. Issues, Approaches,
Methods, Applications, refers to a definition of performance in conjunction with other terms that it is closely related
to, such as efficiency, effectiveness and economics. Thus, according to the author, the performance of an enterprise is
the ability to manage the available resources in an "optimal way for the purpose of sufficient remuneration to cover
the risk assumed and justify the interest on the further developing sustainable path. Performance lies therefore in the
efficiency and effectiveness of the consumed resources (effort) and generated results (effect) to assure and develop
the sphere of interest".
V. Muresan treats the topic of DuPont analysis in the context of introducing a relation in the Romanian financial
analysis, Efficiency = Economics x Effectiveness. To define and specify the multiplicity of terms in terms of
performance it can be said that "economic profitability is a quantitative indication of managerial performance and
managerial performance means the conjunction of two factors: effectiveness (doing what should be done) and
efficiency (to be productive) "(Nicoleta B. Miè u, 2009, p.199). This relationship is expressed in the terms of
DuPont model, as shown in Table 1.

Table 1. DuPont factorization regarding managerial performance

Financial Indicator Return on employed capital Gross margin Rotational speed of total assets
Meaning in
Managerial performance Managerial effectiveness Managerial efficiency
evaluation
Quality of capital placement in Management ability to reach the Management ability to use
Factor definition
the given unit aimed target resources in the best way
Source: Pleter(2005), apud. Nicoleta Bărbuţă Mişu(2009, p. 199).

The author N. Bărbuţă(Ibidem) points out that the study of economic performance is preceded by the study of
economic efficiency, "which deals with the analytical links between costs, returns and risks of alternative measures
proposed for achieving the goals".
According to the author D. Mărgulescu (1994, p. 188), economic efficiency is “the most general category that
characterizes the results arising from the various options for using or saving entered or resources unreacted in
business.”
218 Vasile Burja and Radu Mărginean / Procedia Economics and Finance 16 (2014) 213 – 223

GeorgetaVintilăet. Al. (2012) propose new models of calculation for the study of profitability using the DuPont
system to decompose profitability into several factors of influence. The authors propose an ROE dissociation on rate
indicators that meet the needs of managers. The authors propose an analysis based on the DuPont system separately:
-According to the Economic rate of return:

ோா௡௜ ஼஺ ேிோ
ܴ‫ ܧ‬ൌ ஼஺
ൈ ேிோ ൈ ஺ா
(7)
Where,
RE=Economic rate of return, Reni= Operating result net of tax
CA=Turnover, NFR=Need of working capital
or,
ோா௡௜ ௏஺ ஼஺
ܴ‫ ܧ‬ൌ ௏஺
ൈ ஼஺ ൈ ஺ா (8)
Where,
VA=Added Value, AE=Economic asset
-According to the Financial rate of return:
௉ே ஼஺ ஺ா
ܴ‫ ܨ‬ൌ ஼஺
ൈ ஺ா ൈ ஼௉ோ (9)
Where,
RF=Financial rate of return, CA=Turnover, CPR=Equity

The author Moss Charles B. (2009, p. 9) examines the applicability of the DuPont model to study the
performance of Agriculture and states that the Total Assets Turnover is less important than the Profit Margin in
terms of influence on ROE. The results obtained through the model confirm the company policies working in
agriculture.
The authors Christina Sheela and K. Karthikeyan (2012, p. 91), in the work Financial Performance of
Pharmaceutical Industry in India using DuPont Analysis, examine profitability by the DuPont model on three of the
largest pharmaceutical companies in India. Following the study, the authors concluded that the analysis enables
ranking companies according to the indicators presented in the model, but may also stress the influence of factors
determining the performance of the individual companies. However, the authors stress that absolute measurements
are not always relevant, and to compare several companies, it is necessary to have a common basis in the calculation
of the rates of return.
As can be seen, there are a variety of approaches in the literature regarding the study of performance assessing the
profitability of the companies. In our opinion, the DuPont model is particularly useful in deepening the study of
profitability with a number of significant advantages in the field.

4. Results and discussions

For S.C. Aramis Invest S.R.L. we performed the DuPont analysis applied in the financial statements for a period
of 13 years, highlighting each of the three installments of the model, according to the research methodology
presented.
The fundamental equation of used DuPont analysis is:

ேூ ேூ ்஺ ேூ ்௨ ்஺
ܴܱ‫ ܧ‬ൌ ா௤ ൌ ்஺ ൈ ா௤ ൌ ்௨ ൈ ்஺ ൈ ா௤ (10)

Where,
ROE=Return on Equity, NI=Net Income, Tu=Turnover, TA= Total Assets, Eq=Equity;

Applying the model we obtained the next values:

 Vasile Burja and Radu Mărginean / Procedia Economics and Finance 16 (2014) 213 – 223 219

Table 2. The DuPont analysis for S.C. Aramis Invest S.R.L.

NET TURNOVE TOTAL Eq.

YEAR EQUITY ROE ROS T.A.T. ROA
INCOME R ASSETS Mult.

1 2 3 4 5 2/5 2/3 3/4 4/5 2/4

2012 246136 5863852 9562622 8918376 0,028 0,042 0,613 1,072 0,026

2011 347352 7070451 9780671 8785988 0,040 0,049 0,723 1,113 0,036

2010 265063 6215296 9946683 8690446 0,031 0,043 0,625 1,145 0,027

2009 546135 5530362 11547890 10292255 0,053 0,099 0,479 1,122 0,047

2008 9574195 5093266 25930392 19187361 0,499 1,880 0,196 1,351 0,369

2007 13514 6257675 6429434 4997256 0,003 0,002 0,973 1,287 0,002

2006 90568 8665631 6417455 4836029 0,019 0,010 1,350 1,327 0,014

2005 -299829 8496543 6311287 4745461 -0,06 -0,035 1,346 1,330 -0,048

2004 690693 11171333 6727815 5217636 0,132 0,062 1,660 1,289 0,103

2003 624378 9868609 6087217 4046387 0,154 0,063 1,621 1,504 0,103

2002 513396 8643971 4982247 3349693 0,153 0,059 1,735 1,487 0,103

2001 174579 5569721 3880795 2610694 0,067 0,031 1,435 1,486 0,045

2000 261788 4567396 2636050 1611452 0,162 0,057 1,733 1,636 0,099
Source: Personaj projection of authors.

From Table 2 it can be seen that the ROE had an oscillating period within the analysis, with a general downward
trend. We present the evolution of the main indicators of the company analyzed in dynamics:

600000000

500000000

400000000 Net Income

300000000 Turnover
200000000 Total Assets

100000000 Equity

0
2000 2001 2002 2003 2004 2005 2006 2007 2008 2010 2011 2012

Figure 1. The evolution of the main indicators in the analyis

Source: Personal projection of authors.

From Figure 1 it can be seen that the indicators Turnover and Total Assets for the company experienced a
significant growth trend in the analyzed period. To calculate, in the data sets presented, the influences between
Turnover and ROE on indicators of DuPont model, we used the Pearson correlation report and we highlight the
following correlations:
220 Vasile Burja and Radu Mărginean / Procedia Economics and Finance 16 (2014) 213 – 223

Table 3. The computed correlations for S.C. Aramis Invest S.R.L.

Net Turnove Total
R=Correl(X,Y) Equity ROE ROS ROA T.A.T Eq.M
Income r Assets
R1 0.75 / 0.98 0.94 -0.81 -0.57 -0.65 -0,40 0.26
I. Turnover
R1 2
0.57 / 0.97 0.89 0.66 0.33 0.42 0,16 0.07

R2 -0.63 -0.81 -0.82 -0.81 / 0.71 0.77 0,39 -0.29

II. ROE
R2 2
0.39 0.66 0.67 0.66 / 0.51 0.59 0,15 0.09
Source: Personal projection of authors.

From Table 3, according to the Pearson function, we can say that between Turnover and Total Assets, Equity and
Net Income, there is a direct relationship, namely a positive correlation, of strong and very strong intensity.
However, it can be seen that there is a negative correlation between the indicator Turnover and ROE, ROS and
ROA, Total Asset Turnover and between Turnover and Eq. Multip., ROE and Eq. Multip., there is a low,
insignificant association. In order for the calculated values for correlations between sets of indicators to be
considered, it is necessary to verify the achievement of materiality (alpha). We consider our sample representative
for a significance threshold of p <0.025.
For the first correlation report calculated in Table 2, R1= 0.75, the size of the critical correlation coefficient is
checked, according to the table of critical values for the Pearson correlation coefficient as follows: for N-2= 11
degrees of freedom (df). In the case of the firm SC Aramis Invest SRL, the critical coefficient value for a
significance level p = 0.025% is 0.476. Calculated R is greater than the critical value and thus we exclude the null
hypothesis (no correlation between significant indicators) and accept the hypothesis that between the two indicators
there is a positive correlation of strong intensity.
In the same manner were checked the correlations between Turnover and ROE, with the indicators
presented in Table 2 and data validity was confirmed as materiality for a minimum of 97,5% cases.
In order to compare the correlation coefficients we passed to calculating their seizure of power. Based on the
results of the statistical modeling we can say that by increasing Turnover we expect a significant increase of Net
Income in 57% of cases. In other words, 57% of the cases, the annual variation of Net Income is given by Turnover.
In the remaining 43% of the cases, the variation is given by other factors. From another angle of analysis, increasing
Total Assets and Equity entails a Turnover increased in 97% and 89% of cases. We conclude that stimulating
attracting capital and investment in company assets, Turnover will increase significantly, which will attract with a
high probability the increase of Net Income, too. Referring to the ROE of the enterprise, we observed in Table 2 and
Figure 2 that the pointer is positioned on a downward trend. As a direct influence of the factors in the DuPont model,
ROE is directly correlated with ROS, ROA, and negatively correlated with Eq. Multiplier. In other words, ROE will
improve to the extent that the Equity share in the Total Assets will be lower and the rates of ROS and ROA
profitability will increase.
Due to the specific space of this paper, after all the calculations according to the first example, we present
Turnover and ROE correlations with key indicators from the analysis:

Table 4. The computed correlations for S.C. Italsofa România S.R.L.

Net Turno Total
R=Correl(X,Y) Equity ROE ROS ROA T.A.T EM
Income ver Assets
R1 0,64 / 0,91 0,97 0,53 0,45 0,52 0,92 0,09
Turnover
R12
0,41 / 0,82 0,95 0,28 0,20 0,27 0,85 0,01

R2 0,98 0,53 0,54 0,53 / 0,87 0,98 0,59 0,19

ROE
R22
0,95 0,28 0,30 0,28 / 0,76 0,97 0,35 0,04
Source: Personal projection of authors.
 Vasile Burja and Radu Mărginean / Procedia Economics and Finance 16 (2014) 213 – 223 221

For this company, we can see that Turnover is very well correlated with Total Assets, Equity and Total Assets
Turnover. A good correlation exists also with Net Income, ROE, ROS, ROA, however, with the Equity Multiplier
there is no correlation. Thus, there appears a good use of resources in Total Assets and Equity with a significant
participation to the Net Income (in 41% of cases). Profitability expressed by ROE has fluctuated over time, the
company's profit was affected by the economic crisis. However, a good correlation – Net Income, ROS, ROA and
Equity demonstrates financing based on capital contribution from shareholders not just based on debt.

Table 5. The computed correlations for S.C. Taparo S.R.L.

Net Turno Total
R=Correl(X,Y) Equity ROE ROS ROA T.A.T Eq.M
Income ver Assets
R1 0,76 / 0,96 0,34 0,54 -0,04 0,51 0,82 0,45
Turnover
R1 2
0,57 / 0,91 0,11 0,29 0,00 0,26 0,67 0,20

R2 0,56 0,54 0,32 -0,54 / 0,14 0,53 0,51 0,98

ROE
R2 2
0,31 0,29 0,11 0,29 / 0,02 0,28 0,26 0,96
Source: Personal projection of authors.

In the case of Taparo company, the size of sales expressed here by Turnover is highly positively correlated with
Total Assets and Total Assets Turnover and well positively correlated with Net Income. Thus we conclude that the
company has grown in size well correlated with the increase in Sales and Net Income, meaning a favorable
development. Profitability, however, had a strong positive correlation with Equity Multiplier and moderate
correlations with Net Income, Turnover, ROA and TAT. This is not in the company’s favour as indebtedness had a
negative effect on Net Income, which, within the last three years, decreased by 50%. Regarding Total Assets
Turnover (financial leverage), experts recommend a value of less than 5%, being thus strongly undercapitalized.
However, studying financial information we find apparent that the decision to indebt the company has established
itself in 2010 when Equity decreased by 97% compared to 2009.

Table 6. The computed correlations for S.C. Mobex S.A.

Net Turno Total
R=Correl(X,Y) Equity ROE ROS ROA T.A.T Eq.M
Income ver Assets
R1 0,35 / 0,42 0,35 -0,31 -0,08 0,07 0,32 -0,35
Turnover
2
R1 0,12 / 0,17 0,12 0,10 0,01 0,01 0,11 0,12
R2 0,22 -0,31 -0,51 -0,60 / 0,39 0,64 0,23 0,64
ROE
R22 0,05 0,10 0,26 0,36 / 0,15 0,41 0,05 0,41
Source: Personal projection of authors.

SC Mobex SA, according to key indicators of studied financial statements had been, on the grounds of the
economic crisis, plummeting a Turnover (53%) and a Net Income (33%) between 2008-2009. However, between
2009-2012 the company is on an upward trend amid equity infusion (the company is listed on the Bucharest Stock
Exchange). As the result of calculated correlations, this is why Turnover is not significantly correlated with any
indicator (r<0.4), and ROE is strongly negatively correlated with equity and strongly positively correlated with ROA
and Equity Multiplier. This means a poor correlation between shareholders investment and profitability during the
period studied.

Table 7. The computed correlations for S.C. Mobam S.A.

Net Turno Total
R=Correl(X,Y) Equity ROE ROS ROA T.A.T Eq.M
Income ver Assets
R1 -0,27 / -0,31 -0,35 -0,18 -0,31 -0,18 0,56 0,08
Turnover
R12 0,07 / 0,10 0,12 0,03 0,10 0,03 0,31 0,01
222 Vasile Burja and Radu Mărginean / Procedia Economics and Finance 16 (2014) 213 – 223

R2 0,91 -0,18 0,69 0,58 / 0,89 1,00 -0,20 0,34

ROE
2
R2 0,82 0,03 0,48 0,34 / 0,79 0,99 0,04 0,11
Source: Personal projection of authors.

In the case of SC Mobam SA, also listed on Bucharest Stock Exchange, there is lack of a significant correlation
between Turnover and examined indicators, the company having a significant decline since 2009, once with the
onset of the economic crisis. In the 2008-2012 period, Net Income decreases by 97%, Total Assets Equity decreases
by 63% and Equity decreases by 53%. Subtracting profitability decreased and the level of investment decreased as
well in the company, and also its profit. ROE, in the period under review, has an almost perfect correlation with
ROA, and a very good one with Net Income and ROS. This is, in our case an economic right, but is negative for the
company. With the weakening of ROS, Net Income and ROA profitability declined nearly directly. The company
should consider measures to cut costs and increase sales to become competitive and attractive to new shareholders.

5. Conclusions

Based on financial data analyzed by the DuPont model we can say that there could be found significant positive
correlations with respect to Turnover and Net Income, Total Assets, and Equity. Thus, it can be said that among the
ways to boost sales of a company in the furniture industry, infusion of investment capital allocated to improve and
increase the company's assets can be considered.
On strict ROE profitability expressed by the Romanian companies in the furniture industry strong positive
correlations are found in most cases with Net Income, ROS, ROA and Total Assets Turnover (TAT) and fewer
negative with Equity Multiplier. This means an opportunity to increase profitability in the very close relation to the
value increase of other rates of return in the model or Net Income, realizing that, especially in terms of own
financing and not through increased borrowing under a Total Asset Turnover minimum.
We notice by the performed analysis that the DuPont model is particularly useful in identifying the factors that
influence performance in the furniture industry companies and may also provide new hypotheses of profitability
increases for them. We consider applicable and useful the analysis as exemplified, by calculating correlations
between Turnover and ROE with the other indicators of the pattern along large periods of time, in studying
performance for individual companies as a complex economic phenomenon which depends particularly on certain
indicators.
As future research directions, we suggest expanding research on a larger sample of companies to evaluate factors
influencing the performance of the furniture sector within the Romanian industry.

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